Victoria presses go on Australia’s biggest renewables auction

Victoria presses go on auction of 650MW of wind and solar capacity, the largest renewable energy tender in Australia to date. It’s a critical move as the RET nears completion and Canberra stalls on future policy settings.

As Australia’s federal Coalition continues to fudge and delay on a national energy and climate policy, the state Labor government in Victoria has pressed “go” on what will be the largest renewable energy tender held in Australia – 650MW of mostly wind and solar.

The formal tender documents were released by the Victoria government on Tuesday afternoon, inviting project developers to enter what appears to be a complex, hybrid bidding process that closes on February 14, and will require the wind and solar farms to be built by 2020.

The timing of tender is critically important for the Australian industry, coming as the federal renewable energy target is nearly met, and the industry is left confused and perplexed about what might come from the proposed National Energy Guarantee.

COAG will meet at the end of next week to decide whether to order new work on the NEG – which appears to be little more than a thought bubble. So far, the states have suggested they don’t want a bar of it.

Victoria is charging ahead with its newly legislated target of having 25 per cent of its electricity delivered by renewables by 2020, and 40 per cent by 2025. The first target will need a further 1500MW, including this auction, while the 2025 target will need about 5,400MW of new capacity.

“Renewable energy is key to Victoria’s future and we’re not wasting a minute – to drive new investment, create jobs and cut electricity prices,” Victoria energy minister Lily D’Ambrosio said in a statement.

“This competitive auction will provide much needed certainty to the energy industry, supporting new projects in regional Victoria.”

The 650MW auction , flagged in August, will comprise 100MW specifically set aside for large scale solar projects, while the remainder is open to both technologies.

The price for the projects will be set around two main components. The first is a price that sets the MWH price of the wind and solar projects – $56/MWh for wind, $53/MWh for solar PV and $56/MWh for solar PV with tracking.

Under the mechanism, known as a contract for difference, if the wholesale price is higher than those numbers (and it has been nearly twice as high as that in Victoria for most of this year), then the wind farm owner returns the difference to the government.

If the wholesale price is lower, then the government makes up the difference to the renewable project owners to guarantee them a minimum ongoing income.

The interesting part will come in how much more the wind and solar farm developers need to make it work. This will be decided by a competitive tender of the fixed price component (base amount) of the deal, a cost per year per megawatt installed.

Given that recent contracts such as Stockyard Hill have struck power purchase agreement with Origin Energy at below $55/MWh, then the bidding on that component ought to be very low (although some consider that particular contract to be a “one-off)”.

Solar farms will likely need more – particularly in Victoria which has less good solar resources than Queensland, South Australia, or Western Australia.

Solar farm developers will likely need a total return of around $70/MWh – still significantly cheaper than recent wholesale prices and well below the assumed costs included in the federal government’s NEG modelling.

It is thought that the hybrid bidding process, rather than just a single bid on the contract for difference – was chosen because it would limit Victoria’s exposure to wholesale price movements. This way, the government can benefit if the wholesale price falls dramatically in doing years.

The auction is the biggest ever in Australia. The ACT government allocated a little over 700MW, but over a series of four different solar and wind auctions in its pursuit of 100 per cent renewable energy by 2020.. Most were decided by a contract for difference bid.

Queensland proposes a 400MW tender, including 100MW of storage, but this is on hold pending the outcome of the state election later this month. And the result of that is far from clear. The Coalition, should it win, has vowed to scrap all renewable energy initiatives.

W.A. is finally acting to build large scale wind and solar farms after a three year investment drought, but this week it controversially approved a new “green fund” that will likely invest only in projects owned by the dominant utility, the state-owned Synergy.

Independent power producers have called foul, wondering why there was no open tender, warning it will simply reinforce the power of the incumbents, and saying it could kill the broader development of wind and solar in that state.

The same accusations are being levelled at the federal government’s proposed NEG, with the most concern about its potential to simply reinforce the power of the incumbents, and potentially erect a barrier to new wind and solar, depending on how the “reliability” obligation is put together.

The fear is that this policy is being designed to placate the far right of the conservative parties and deliver the answers they are seeking – mainly that coal has a future. But by doing that, the ESB could end up designing a completely dud and obstructive policy, and bad for renewables.

The Victoria renewable energy auction is expected to drive up to $1.3 billion in new capital expenditure, create 1,250 construction jobs and 90 on-going roles.

“This is what leadership and confidence looks like. The Victorian government is to be congratulated,” said Andrew Bray, national coordinator of the Australian Wind Alliance.

“Victoria has world-leading wind resources and the VRET creates the policy certainty needed to generate jobs and economic benefits to communities all across the state.”

Other key components to be considered in the tender are local investment opportunities, the technical capabilities of the developer, community engagement and impact of existing grid infrastructure. Proponents will need an agreed grid connection.

“Victoria is in the midst of a transformation towards a modern energy system that is more affordable, reliable and sustainable,” the documents say, noting that renewables will improve system supply, create new jobs, and deliver health, and social benefits and reduce greenhouse gases.

Winners will be notified in July, next year. And it will likely be the last auction before the state election in November, 2018

The state Coalition remains implacably opposed, and voted against the VRET in parliament.

Earlier this month, at a Victoria Liberal Party function, the party presented federal treasurer Scott Morrison with a lump of brown coal as a gesture of its appreciation for the government’s anti-renewables policies. The state goes to the polls in November, 2018.

Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

Giles Parkinson is founder and editor of Renew Economy, and is also the founder of One Step Off The Grid and founder/editor of The Driven. Giles has been a journalist for 35 years and is a former business and deputy editor of the Australian Financial Review.

29 Comments

lin 2 years ago

More excellent work from Andrews. This again shows up our Fed Govt as ideologically compromised and spineless. “The state Coalition remains implacably opposed” Best reason I have heard not to vote for them.

Rob G 2 years ago

I cannot see the Libs getting up in VIC. Andrews is by far one of the strongest leaders going in Australia. Matthew Guy is hardly a threat.

Greg Hudson 2 years ago

Are you forgetting the $1b Eastlink tunnel fiasco ? (thanks to Andrews)

lin 2 years ago

Are you talking about the project Andrew’s got elected by promising to cancel? The one Abbott was pushing as a referendum on leadership? The one where the Libs signed the secret side-letter during the caretaker period after signing off on the project after they had called the election, and costing us 1.5 billion? The project that was going to lose 60 cents for every dollar spent on it? Definitely worth a big vote of thanks to Andrews. Without him we might have Ventnor/Port Melbourne/high rise approving Guy as “leader”.

Hettie 2 years ago

Sock it to ‘im, Lin! Always a pleasure to see a lying, luddite troll being chewed out by someone who knows the facts.

Joe 2 years ago

Young Lin, you are superb. I live in Sydney and my Sydney Morning Herald newspaper reported on this project. The stench of the Libbies grubby transaction could be smelt all the way up here in Sydney. Premier Dan delivered what he promised and shame on Abbott and the Vic Libs!

Callen 2 years ago

Since when does a required national road need to make a profit? It’s faux accountants like you that are holding this country back. We are the most livable city in the world apparently, the only way to maintain that title is to be ahead of the game, go above and beyond what is required. You fail to consider the 10,000 people moving here per month and the amount of time it takes to move around our congested city. How does one quantify the economic benefits of being able to get to work on time, to get home to ones family before 730pm every night? Political Bias aside, it was a terrible decision. I don’t mind Daniel Andrews at all, but this was a horrible mistake by any metric. The rest of the world are in trillions of debt that they have no intention of ever paying back yet we are trying to run our public works at a profit. PLEASE.

lin 2 years ago

The only people who would have benefited significantly from that tunnel were those going from the eastern freeway to the airport or western suburbs. Joining the eastern to the ring road so that you are not funnelling everyone into the city regardless of where they actually need to go makes better sense. It was not going to help those going to the city, just move the bottleneck by a couple of blocks. Wrong design concept and much too expensive.

Alastair Leith 2 years ago

What put a ring road extension through the Banyule Flats wetlands? No thanks. A previous Labor MLC promised to resign if that VicRoads wet dream ever went ahead. The Western Ring Road is already crawling during peak hour traffic.

Alastair Leith 2 years ago

More freeways only lead to more congestion… improving public transport is the answer to urban congestion.

lin 2 years ago

…..and having people live close to where they work, and having good active transport networks around local activity hubs (schools, shops etc) and decentralising rather than squeezing so many people into a few mega-cities.

Mike Shackleton 2 years ago

Since when does a required national road need to make a profit?

It still needs to provide an economic benefit, even if the road itself does not generate a direct profit. East West only generated a profit for the operator.

The 40 cents in every dollar return/60 cents loss was calculated on the wider economic benefits and often named “intangibles” – that is, concepts like improved productivity through reduced travel times, reduced pollution associated illness due to reduced congestion and actual pollution, improved amenity for areas local to the infrastructure etc etc.

The project that should have been prioritised was the missing link for the ring road (now in options study) which would have removed through traffic out of the city altogether and improved traffic flow in the north east suburbs. Not only this, the project made any possibility of Doncaster rail disappear because it was going to consume land set aside for that purpose.

Melbourne Metro was also canned in favour of it despite the experts (Infrastructure Australia) repeatedly advising that Metro was the best bang for buck/highest priority project in the country.

A lot of the money spent is not lost as the investigation data and design may be used for East-West in the future if it becomes economically justifiable. There is also talk of “Metro 2” which involves an underground line running from Clifton Hill to Southern Cross and onto Fishermans bend, interchanging with Metro 1 at the University/RMH station along the way. This may even tie into the Doncaster line.

Rob G 2 years ago

Andrew’s cleaned that mess up. Another reason to vote him in. A great big white elephant bleeding money. He stopped the bleeding.

Greg Hudson 2 years ago

Are you insane? He’s now starting an even bigger project ($13b) linking the Ring Road to the Eastern Freeway, but the traffic still ends in a T intersection. BAD planning.

Chris Marshalk 2 years ago

I’m glad the states are going ahead with renewables as this is long overdue. You cant trust the LNP to deliver anything. Go Victoria!!

Joe 2 years ago

The Federal Govts. in Australia and The U.S. of the A. are like brothers in arms, acting like roadblocks against RE and it is on purpose. But then we have ‘independent jurisdictions’ in both countries, the States and even some cities charting their very own course in embracing RE. There is no holding it back, maybe a slight delay from those Feds but the RE transition is under way and the economics is pushing it along with great gusto. You really have to wonder what these Feds. are thinking.

Alastair Leith 2 years ago

Less what they are thinking and more about what is arriving in brown paper bags.

john 2 years ago

I see this {National Energy Guarantee} This appears as a road block to any advancement to a sensible movement toward a lower cost of energy to the system.

Ralph Buttigieg 2 years ago

Question : Does the company still get the RET credits? My view is if the government is setting a guaranteeing a minimum price for them the creidits should go to the government.

Peter Campbell 2 years ago

My understanding is that in the similar scheme in the ACT the certificates go to the government and are surrendered in order for the renewable generation to be additional to the national RET.

David Osmond 2 years ago

According to the auction website (see link below), the project will get the LGC credits up to 2020, but beyond 2020 the scheme will be additional to the Federal Scheme (ie, it won’t get any credits). In terms of who gets the LGCs up to 2020, the website says that project must submit two auction bid prices, one where the project developer keeps the LGC revenue, and another where they must be signed over to the Vic Government.https://www.energy.vic.gov.au/__data/assets/pdf_file/0014/80510/VRET-fact-sheet-Auction.pdf

Ralph Buttigieg 2 years ago

Thats excellent news. The RET subsidy is the only real arguement the anti renewables people have.

Joel D 2 years ago

Could you please explain this bit for me?

“It is thought that the hybrid bidding process, rather than just a single bid on the contract for difference – was chosen because it would limit Victoria’s exposure to wholesale price movements. This way, the government can benefit if the wholesale price falls dramatically in doing years.”

Maybe I’ve got this wrong, but wouldn’t the CFD mean that the government benefits if the wholesale price increases, and the government has to stump-up money if the wholesale price falls dramatically?

Mike Shackleton 2 years ago

Basically the Victorian Government is becoming an electricity wholesaler, buying electricity at a fixed price equal to the contract value from the wind or solar farm operator. The operator earns money at a fixed price and the government just sells it on to the retailers, although this may be unnecessary. Remember there are a lot of government electricity users – the tram network, train network (which is the biggest electricity user in the state now that the Alcoa facility in Geelong has closed) , hospitals, street lights etc so at $55 MWh this is comparable to what the wholesale price from Hazelwood was. The government is essentially buying a long dated contract on electricity supply.

Joel D 2 years ago

Thank you. That’s what I thought but maybe I’m still missing something – if the wholesale price falls dramatically, then the Victorian Government would be buying electricity potentially for more than its worth. With the Govt. buying it and selling it to the retailers, wouldn’t they make more money if the wholesale price increases, as the contract price is locked in?

That is, if they are essentially buying a long-dated contract on supply, isn’t an increase in wholesale prices good, and a decrease bad?

Joel, you’re right and i expressed it badly. What i was trying to say was that by offering a low price for the CfD component, Victoria is protected if wholesale prices plummet, as it would hope they do. And, as you point out, should they stay high, then they also benefit.

Mike Shackleton 2 years ago

A decrease could be bad but this puts a stable price on electricity bought by the government for decades. It’s easier to budget for electricity costs when the price is set. The government isn’t going to suffer from bill shock. Even if it means the government ends up paying over the odds a bit for it in the distant future. $55/MWh is a great price even by Hazelwood standards and is cheaper than a new coal fired station could supply at.

By the stage that this occurs, battery storage would much cheaper and the state government could choose to incorporate storage to take advantage of higher spot prices outside periods of high renewables availability.

Ralph Buttigieg 2 years ago

OK thats the CFD price but what about the FP? how does that interact? Is the government paying double?

Ralph Buttigieg 2 years ago

I have just read the link from the Victorian government. Do I understand correctly that the producers get two bites of the cherry? Both the CFD plus the fixed Price? So if the CFD price is $56 and the FP is $50 they get $106Mwh?!!